July 28 (Bloomberg) -- The U.S. and European Union will act
on stiffer sanctions against Russia as soon as this week as
Vladimir Putin’s government is “doubling down” on its support
for Ukrainian rebels, an Obama administration official said.

The new sanctions by the EU are aimed at the Russian
finance, defense and energy industries as well as Putin’s
“cronies,” Deputy National Security Adviser Tony Blinken said.
Separately, EU government representatives today agreed on a list
of Putin business associates to be subjected to previously
announced asset freezes and travel bans.

U.S. President Barack Obama consulted the leaders of
France, Germany, Italy and the U.K. during a video and telephone
conference earlier today as the allies coordinate their response
to Russia’s actions in Ukraine, he said.

“Russia bears responsibility for everything that’s going
on in Eastern Ukraine” and “has the ability to actually de-escalate this crisis,” Blinken said.

Russia has extended its support for the separatists in
eastern Ukraine since the downing of a Malaysian airliner on
July 17, according to Blinken. They have moved more troops to
Ukraine’s border and continued supplying the separatists in an
effort to destabilize Ukraine’s government, he said.

Blinken’s comments reinforced an earlier statement from
French President Francois Hollande’s office.

European Response

“Despite numerous appeals to President Putin, Russia has
not effectively put pressure on the separatists to force them to
negotiate, and has not taken the concrete steps asked of it to
control the Ukraine-Russia border,” the French said. “The five
heads of state and government confirmed, under these conditions,
their intention to adopt new measures toward Russia.”

The other leaders taking part in today’s call were German
Chancellor Angela Merkel, U.K. Prime Minister David Cameron and
Italian Premier Matteo Renzi. U.S. Vice President Joe Biden and
Ukrainian Foreign Minister Pavlo Klimkin are scheduled to meet
in Washington at 4:15 p.m. local time.

Representatives of the 28 EU governments, meeting in
Brussels today, agreed on the list of Putin business associates
to be added to those hit with asset freezes and travel bans. The
names will be published July 30, an EU official said.

Merkel’s chief of staff, Peter Altmaier, said Germany wants
the EU to agree to new sanctions aimed at Russia tomorrow. The
EU earlier this month promised to consider its strongest
sanctions yet against the Kremlin over its purported aiding of
the rebels.

Blinken declined to preview the sanctions in more detail.

Adding Names

If Europeans include on their list names that U.S. has not
yet banned, the Obama administration is likely to add those
names to its list, said Robert Kahn, a former Treasury official
who is now a senior fellow for international economics at the
Council on Foreign Relations in Washington.

The U.S. might also prohibit additional financial
activities such as foreign exchange or commodities trading with
certain Russian companies, he said.

“You will see a significant and long-term decline in the
Russian economy from these sanctions,” Kahn said in a phone
interview today.

The U.S. is likely to deny Russian access to oil-production
equipment that could be used in the Arctic and deep waters, and
add more banks and energy companies to the list of those banned
from U.S. financing, according to analysts David Gordon, Cliff
Kupchan and Mujtaba Rahman at the New York-based Eurasia Group,
which issued a report today.

Russia’s Economy

Blinken said the sanctions already imposed by the U.S. and
EU are biting into Russia’s economy, which has been teetering on
the brink of a recession.

Russia’s Micex Index dropped 1.9 percent to 1,361.94 at the
close in Moscow, an 11-week low, as investors weighed the risk
to growth from new sanctions. It has declined 5.7 percent since
Russia’s intervention. The ruble weakened 1 percent to 35.5014
versus the dollar.

The International Monetary Fund last week lowered its
forecast for Russian economic growth this year to 0.2 percent
from 1.3 percent, citing capital flight triggered by the
country’s involvement in the Ukraine conflict.

“We’ve seen the financial markets go up and down, the
ruble hitting lows,” Blinken said. He cited $70 billion in
capital flight and said Russia’s central bank spent 8 percent of
foreign exchange holdings, or $37 billion, defending the ruble,
resulting in higher borrowing costs and a decrease in the value
of Russian savings.

Giving Pause

“The credit rating for Russia was cut to just above the
junk level; financial deals are frozen; Russian companies are
not issuing bonds to raise capital,” Blinken said. Russia, he
said, is giving investors “great pause.”

Capital outflows from Russia triggered by sanctions may
reach as much as $200 billion this year, said Anders Aslund, a
senior fellow at the Washington-based Peterson Institute for
International Economics.

That means “less investment, and less investment leads to
less growth,” and so additional sanctions can “easily” make
the Russian economy contract, he said by phone today.

In a sign that Russia is girding for more restrictions,
Putin held a meeting on replacing imports in the defense
industry, according to a statement posted on the Kremlin’s
website.

Russian-Made Materials

“The main issue on the agenda today is speeding up work to
replace imports in the defense industry and make the broadest
possible use of Russian-made materials and components in
production of special equipment and arms,” Putin said in his
opening remarks published by the Kremlin.

The U.S. has imposed penalties on large Russian banks,
energy companies and defense firms that prevent them from
accessing U.S. equity or debt markets for new financing with a
maturity beyond 90 days.

The U.S. says the crash of the Malaysian Airlines jet that
killed all 298 passengers and crew was probably caused by a
Russian-supplied surface-to-air missile fired by the rebels.

Fighting near the crash site in east Ukraine again
prevented Dutch and Australian investigators from reaching the
area.